Functional test for plant depreciation: electrical installations exposed to corrosive chemicals qualified for the special rate.

Electrical installations, including transformers and allied equipment in an acetic acid unit, were treated as plant because they formed part of the apparatus used in the manufacturing process under the functional test. As the installations were exposed to acetic acid fumes and a corrosive atmosphere, they fell within the special depreciation entry for machinery and plant coming into contact with corrosive chemicals. The general rate applicable to electrical machinery did not apply. The installations were therefore entitled to depreciation at 15% rather than 10%.

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Issues: Whether the assessee's electrical installations formed part of the plant used in the manufacture of acetic acid and, if so, whether they were entitled to depreciation at the special rate of 15% as machinery and plant coming into contact with corrosive chemicals.

Analysis: The applicable depreciation schedule distinguished between the general rate for electrical machinery and the special rate for machinery and plant coming into contact with corrosive chemicals. The decisive question was whether the electrical installations, including transformers and allied equipment in the acetic acid unit, answered the description of "plant". Applying the functional test, the installations were part of the apparatus by which the manufacturing activity was carried on and were exposed to acetic acid fumes and a corrosive atmosphere. On that basis, they fell within the special entry for machinery and plant coming into contact with corrosive chemicals and outside the general entry for electrical machinery attracting only 10% depreciation.

Conclusion: The electrical installations were plant used in the manufacturing process and were entitled to depreciation at 15%, not 10%.

Ratio Decidendi: An item is plant for depreciation purposes if, on the functional test, it forms part of the apparatus used to carry on the business, and where such plant comes into contact with corrosive chemicals it is governed by the special depreciation rate rather than the general rate.

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